Little risk of exceeding WTO limits, but Doha could add complications

WASHINGTON, Sept. 16, 2015 - Farm program payments shouldn’t come anywhere close to exceeding the annual limit that the United States can spend on trade-distorting subsidies under World Trade Organization rules, according to a new analysis published in the economic research journal Choices.

However, the story could be very different if negotiators ever reach agreement in the ongoing Doha Round of talks. U.S. subsidies would bump up against or exceed the much tighter caps proposed in 2008 in the Doha Round. “There are any number of ways you could get in trouble,”said the report’s lead author, Pat Westhoff, director of the University of Missouri’s Food and Agricultural Policy Research Institute. USDA’s former chief economist, Joe Glauber, was a co-author.The next round of Doha Round discussions is set for Nairobi, Kenya, in December.

Under the earlier Uruguay Round agreement, the U.S. is supposed to spend no more than $19.1 billion a year in trade-distorting “amber box”farm payments, or AMS, for “aggregate measure of support.”The analysis estimates that amber box payments will top out at under $7.1 billion for 2014, fall to $5.3 billion and be no higher than $5.5 billion through 2018.

A big reason the numbers are that low is that the new Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) payments likely won’t count toward the limit because of the WTO’s so-called “de minimis’rule. Under that provision, payments are excluded from the limit if they amount to less than 5 percent of the value of production, and ARC and PLC will fall into that category.

Another reason the amber box limit is no problem: The Obama administration last year changed the way it reports the amount of crop insurance premium subsidies. The annual totals will be smaller. The amber box includes crop insurance premium subsidies and marketing loan gains as well as the value of the sugar program to producers.

Under the Doha Round proposal, the amber box limit would be slashed to $7.6 billion, and the limit for the de minimis exemption would be cut from 5 percent to 2.5 percent. The change in the de minimis rule would mean that U.S. amber box payments would amount to about $7.4 billion a year, barely under the cap, the economists say.

Also problematic are proposed new rules for the so-called blue box. Under current rules, blue box payments are unlimited but programs don’t qualify unless they restrict production. Under the Doha proposal, that restriction would be gone, and U.S. blue box support would be capped at $4.8 billion a year. ARC and PLC payments could qualify for the blue box, and they could easily exceed the cap during years when commodity prices are relatively low, the economists say.

“Because of the shift to a much more extensive reliance on amber box subsidies and other less direct forms of income transfers to farmers, the 2014 farm bill has complicated trade negotiations by making compliance issues more problematic,”the economists wrote.

The Obama administration has a “strong interest”in wrapping up the Doha talks, but “we’re not interested in unilaterally making concessions, particularly on the side of domestic support,”USDA’s deputy under secretary for farm and foreign agricultural services, Alexis Taylor, told the House Agriculture Committee on Tuesday. Later, she told Agri-Pulse that the administration considers the cuts proposed in 2008 outdated, noting that some developing countries have since “emerged as large subsidizers as well. …We think the conversation is very different.”

This week’s guest on Open Mic is Ken Dallmier, President and COO of Clarkson Grain Company. While the global grain business is dominated by supply, demand and now trade wars, this Illinois-based company functions under a customer-focused mindset. Dallmier says this generation of consumer demand is dominated by a different set of social values leading to questions over the way food is produced and the prices they’re willing to pay. Sustainability, organic and non-GMO are providing farmers an income stream isolated from traditional market forces.

Department of Transportation Secretary Elaine Chao and Environmental Protection Agency Acting Administrator of the Andrew Wheeler recently announced their intent to reassess and correct the Corporate Average Fuel Economy standards.

The world of agriculture extends beyond what’s growing in your field or living in your barn, and here at Agri-Pulse, we understand that. We make it our duty to inform you of the most up-to-date agricultural and rural policy decisions being made in Washington D.C. and examine how they will affect you – the farmer, the lobbyist, the government employee, the educator, the consultant and the concerned citizen.